Some T-Bills Due Jan, Feb Are Trading With Negative Rates

[Newsjock]

Source: Wall Street Journal

Some Treasury bills maturing at the start of next year traded at negative rates Thursday, a sign of investors' strong demand for the safest securities at a time when T-bills are in scarce supply.

When market participants buy Treasury bills at negative rates, they are essentially paying the government to keep their money safe.

Rates on issues maturing in early January and February turned negative Thursday, to as low as -0.03%, traders said. Some issues maturing in the first two weeks of December also slipped, trading at flat to a bit negative Thursday.

Bill yields last fell below zero in late 2008 amid the financial market panic that was triggered by the bankruptcy of Lehman Brothers Holdings Inc. (LEHMQ). The decline this time, though, isn't driven by the same sorts of fears--it's more about a scarce supply of T-bills amid strong demand for safe assets, given the hazy economic outlook.

Read more: http://online.wsj.com/article/BT-CO-20091119-714012.htm...

[Ian David]

1. Percentage wise, they probably lose less money than I do with stupid bank fees. n/t

[2Design]

8. get out of banks and into credit unions

right now my credit union offers green checking where they pay interest on checking but I have to use a debit card 12 times in the month = pays higher than most savings or cds out there

[Robb]

9. Just to chime in, credit unions aren't the be-all end-all of all financial issues.

Just FYI, our credit union has been terrible to deal with. I get better deals and service from Wells Fargo, who I also hate.

Edited to add: not directed necessarily at you, just in every thread I read about money someone says "You should join a credit union!!" like that will solve every problem. It doesn't, is all I'm sayin'.

[2Design]

17. try another credit union - banks are putting the screws to people

they tried to get rid of credit unions - there is always some sad tale with a credit union - but far less than with banks

[notesdev]

2. sounds like a market crash is imminent

Negative rates imply an incredible level of demand, people are fleeing to safety... the question is why? It may finally be the right time to short equities and commodities.

The upside to the rampant insider trading that dominates the market is that you get a heads up to events about to happen by watching what they do.

[Psephos]

3. Short equities? Yes. Short commodities? You're nuts.

Commodities are real; fiat money is fancy toilet paper. As the US dollar turns into the Zimbabwe dollar, smart global money will veer away from instruments of fiat and toward tangibles.

Gold was $300/oz in 2001. Think about it.

[notesdev]

4. On commodities

You would think that a dropping US currency would mean more expensive commodities, and under normal circumstances that is absolutely correct.

However, one must keep in mind that the U.S. represents somewhere between a quarter and a third of world commodity usage. Even with the currency taking a major hit, the U.S. economy is taking an even bigger hit, crushing commodity demand.

Take a look at the price of oil and note that it is NOT moving inversely with the dollar at this time. I was surprised when I noticed this was happening, but it's been some time and the pattern is holding. The dollar is plunging but oil is in the $75-80 range and hasn't been going anywhere.

Intuitively the simple explanation is that unemployed people don't drive to work.

[Psephos]

5. ;) You know, the problem with trying to read the crystal ball is that all scenarios sound plausible

You raise some good points there, too.

I notice that Roubini has gone from commodity-bullish to commodity-bearish just since August.

Hard not to like gold these days, regardless.

[Knight Hawk]

7. Yes

From what I read you are right on.

[Odin2005]

10. BS right-wing talking points.

"As the US dollar turns into the Zimbabwe dollar"

Quit reading Libertarian BS.

[TexasObserver]

11. co-sign

[Psephos]

14. A penetrating analysis and insightful advice. Many thanks. ;) n/t

[WriteDown]

16. Haha...

Very droll.

[Iowa]

15. Another view...

"...people are fleeing to safety... It may finally be the right time to short equities...

If people are fleeing to safety, it's already too late.

As a general rule, the time to sell is when optimism is high, and the time to buy is when people are fleeing to safety. Very few truly do that, and I hope it stays that way because I've made a lot of money buying equities from people who are fleeing, and then selling them back when people are optimistic.

That being said, I don't believe we can say that investors are fleeing to safety at the moment. Equities on the whole are still pretty high, but with potential remaining for increases. I bought a bunch of equities when the S&P was around 750 a few months back - a raging buy IMO. It's about 1100 now, and I recently took some off the table because the bounce from 750 blew my asset allocation range out of whack (a nice problem to have). If we see another major decline, I'll be back in with both feet. I just don't see the current market as a time for making any large bets.

[Hugin]

6. Isn't that fourth paragraph two ways of saying exactly the same thing?

"Bill yields last fell below zero in late 2008 amid the financial market panic that was triggered by the bankruptcy of Lehman Brothers Holdings Inc. (LEHMQ). The decline this time, though, isn't driven by the same sorts of fears--it's more about a scarce supply of T-bills amid strong demand for safe assets, given the hazy economic outlook."

Translation: "In 2008 a negative rate was caused by a flight to safety, but, this year a negative rate is caused by a fight to safety."

[TexasObserver]

12. I don't think there will be more than a 20% drop in equities' values, followed by resurgence.

I think there is a 50-50 probability the DOW and other indexes dip in the first quarter of 2010, and maybe drop as much as 10-15%, due primarily to the commercial loans that roll over, the bankruptcies of businesses whose Christmas sales floundered, and the personal post Christmas spending bankruptcies. I do not buy into any of the hysterics, however. I expected the DOW to fall to 7000 last year, and if the DOW drops below 9000 in the first quarter of 2010, I expect it to rebound by mid summer. Everyone has their own opinion, of course, but this one is mine.

While the markets have shown great improvement, a huge chunk of that improvement is directly linked to the declining value of the US dollar, as was expected when we undertook this Keynesian quest to help pull the economy out of the Bush nose dive.

The economy is hurting, and that means people don't have jobs, or they don't have jobs that pay enough, or they don't get enough hours. Getting people back to work is the only thing that will fix the mess, but that takes time, and it takes more programs than have been designed and funded so far. I favor a WPA jobs program now. I favor a WPA style technology based jobs program now.

[dixiegrrrrl]

13. Not enough t-bills were selling very recently.

And the Fed stepped in and bought them.
so sayeth Denninger.
Why now is there such a high demand and scarcity issue?

[daleo]

18. Sounds like deflation

If the CPI is projected to be going down faster than the negative interest, this would make sense.